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Diesel Price in Delhi Surpasses Petrol Price Today: What Does it Mean for the Automotive Industry in India?

Jun 24, 2020 1:37 PM 3 min read
Editorial

Recall the bias one had towards diesel as a cheaper fuel...rightly suited for smoky trucks and buses and not the family car?

In a historic first, the diesel price in Delhi has now surpassed petrol price in the national capital, making it a more expensive transport fuel for the first time in living memory.

On a Rising Spree

Diesel prices in India have been rising for the last 18 days.

The daily increase in fuel prices started on June 7th as Oil Marketing Companies (OMCs), like  IOCL, BPCL, HPCL etc., resumed daily revision in prices in line with costs after ending a 82-day hiatus (imposed in mid-March after the Government raised excise duty on petrol and diesel to shore up additional finances).

Following the latest hike of 48 paise per litre in diesel prices, effective today, a litre of diesel in Delhi will cost ₹79.88 while the price of petrol remains the same at ₹79.76.

Diesel prices were also hiked in other states but will continue to be cheaper due to lower taxes levied by other states.

 

The Breakdown

Here’s a look at what makes up Petrol and Diesel price in India (in ₹ per litre), effective June 16th 2020.

 

price buildup of diesel and petrol

 

Here’s a more detailed guide to understand Indian fuel price breakdown. Never mind the dated numbers - the principles are the same.

 

Why the Rise in Prices?

Do you recall that early last month, the Government had announced the steepest ever hike in excise duty on fuel, raising it by ₹10 per litre for petrol and ₹13 per litre for diesel? But it insisted that there won’t be any change in fuel prices for the end user i.e. People (called the ‘Retail Selling Price’ or RSP).

Essentially, any potential rise in RSP due to increase in taxes (excise duty, VAT) was being balanced by the recent drop in International Crude Oil Prices. And OMCs cushioned the end-user (not really cushioning but ensuring that there is price parity), passing on higher revenues to the Government...and everyone goes home happy.

But now, as the economy is slowly opening up, trying to recover from the COVID-19-induced pandemic, OMCs in India have been revising fuel prices every day to make up for the loss they incurred when the entire country went into lockdown and demand came to a screeching halt on the back of restricted mobility.

With reduced travel restrictions during Unlock 1.0, and rise in fuel demand, OMCs are using the opportunity to pass on the impact of the hike in excise duty and cover their losses.

While this news might have sent ripples across the Indian economy, it is rather interesting to note that globally, diesel is priced marginally higher than petrol, owing to the very nature of the product that has a higher cost of production.

However, in India, the lopsided tax structure has until now ensured that petrol prices were higher than that of diesel.

 

what does the rise in price of diesel mean for the automotive industry?

 

How Will This Change Things?

Needless to say, the automobile companies in India will be the greatest hit by the latest developments, who have spent millions to ramp up their facilities for diesel run vehicles.

The wider expectation is that the demand for diesel cars is now likely to fall further, after having already plunged over the last few months on the back of BS6-induced price hike.

 

What Can be Done?

Well as per experts, a starting point for automobile companies might be to deploy strategies being followed by companies in the western markets where diesel run cars are not sold on fuel pricing differential, but on overall make and quality that puts them ahead of petrol run cars.

And the government can always bring back the earlier tax hikes and allow OMCs to actually benefit from low crude prices - ensuring parity to people. But that’s a long shot, no!? 

FIN.

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